Rajasthan High Court - Jodhpur
M/S Arun Cotton Company vs A.C.I.T.Circle,Sriganganagar ... on 11 November, 2024
Bench: Pushpendra Singh Bhati, Yogendra Kumar Purohit
[2024:RJ-JD:45464-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
D.B. Income Tax Appeal No. 68/2009
M/s Arun Cotton Company, Sri Ganganagar,
(Dissolved w.e.f/ 31.03.2005)
Present address:
903, Tulsiani Chambers,
212, Backbay Reclamation,
Nariman Point,
Mumbai-4000 21.
----Appellant
Versus
A.C.I.T. Circle, Sriganganagar
----Respondent
For Appellant(s) : Mr. Anjay Kothari
Mr. Amit Sharma
For Respondent(s) : Mr. KK Bissa
HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI
HON'BLE MR. JUSTICE YOGENDRA KUMAR PUROHIT Reportable Order 11/11/2024
1. The instant appeal has been filed by the appellant against the order dated 27.05.2009 passed by ICAT affirming the order dated 18.08.2008 of CIT(A), Bikaner and penalty order dated 10.03.2008 of Assessing Officer, with the following prayers:
"(i) Allow the instant appeal and set aside or quash the impugned order of the ITAT dated 27.05.2009.
(ii) Quash the impugned peanlty order dated 10.03.2008 passed by the Assessing Authority in the case of the appellant for the A.Y. 2005-06.
(iii) Decide the aforesaid questions of law in favour of the appellant and against the revenue.
(iv) Reframe suitable questions of law, if it is considered necessary, to do justice to the appellant.
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(v) Any other appropriate relief, as may be considered appropriate, in the interest of justice, including awarding of the costs."
2. Learned counsel for the appellant submits that the appellant was a partnership firm vide partnership deed dated 01.04.1990. The counsel for the appellant submits that the partnership firm was dissolved on 31.03.2005 on mutual consent of all the partners and therefore, the place of business no more remained at Sriganaganagar as, the partners from 01.04.2005 were residing at Mumbai. The counsel for the appellant submits that due intimation was given to the Assessing Officer regarding the dissolution of the firm and the dicontinuance of business as required under Section 176(3) of the Income Tax Act (hereinafter referred to the Act of Income Tax) on 25.04.2005 along with the copy of the dissolution deed. The counsel for the appellant submits that the appellant filed a return of income and audit report with all the financial statements and information to the concerned authority in Mumbai on 14.10.2005 as it was having the territorial jurisdiction and the information was also given to AO Sriganganagar with a request to transfer the records to concerned authority at Mumbai. The counsel for the appellant submits that the respondent did not consider the same and rather has imposed penalty under Section 271(B) of the Act to the tune of Rs. 1,00,000 on 10.03.2008 and the same has been affirmed by CIT (Appeal) and learned ITAT. The counsel for the appellant has taken this Court to Section 273(B) of the Act, which reads as follows:-
"273B. [ Penalty not to be imposed in certain cases. [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).]
- Notwithstanding anything contained in the provisions of [clause (b) of sub-section (1) of] [section 271, section 271-A] (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (3 of 11) [ITA-68/2009] [Substituted by Act 4 of 1988, Section 114, for " section 270, clause (a) or Clause
(b) of sub-Section (1) of section 271, section 271-A, section 271-B, sub-Section (2) of section 272-A, sub-Section (1) of section 272-AA, sub-Section (1) of section 272-B" (w.e.f. 1.4.1989).][, section 271-
AA] [ Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271 B, ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 271-BA] [Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271-BB,] [ Inserted by Act 12 of 1990, Section 50 (w.r.e.f. 1.4.1990).] [section 271-C, section 271-CA] [ Substituted by Act 21 of 2006, Section 55, for " section 271-C"
(w.e.f. 1.4.2007).][, section 271-D, section 271-E, ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).] [section 271-F, ] [Substituted by Act 26 of 1997, Section 55, for " section 271-F"
(w.r.e.f. 1.4.1997).][section 271-FA,] [ Substituted by Act 18 of 2005, Section 61, for " Section 271-FA" (w.e.f.
1.4.2006).] [section 271FAB, section 271FB, section 271G, section 271GA] [Substituted 'section 271-FB, section 271- G' by Finance Act, 2015 (No. 20 of 2015), dated 14.5.2015.][, clause (c) or clause
(d) of sub-section (1) or sub-section (2) of section 272-A, sub-section (1) of section 272-AA or ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 272-B or] [ Inserted by Act 20 of 2002, Section 106 (w.e.f. 1.6.2002).] [sub- section (1) or sub-section (1-A) of ] [Substituted by Act 21 of 2006, Section 55, for " sub-section (1) of section 272- BB" (w.e.f. 1.6.2006).][section 272-BB] [ Substituted by Act 20 of 2002, Section 106, for " section 272-BB or" (w.e.f.
1.6.2002).][or sub-section (1) of section 272-BBB or] [Substituted by Act 21 of 2006, Section 55, for " sub-section (1) of section 272-BB" (w.e.f. 1.6.2006).] [clause
(b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.] (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (4 of 11) [ITA-68/2009] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).]}"
3. Learned counsel for the appellant submits that there was a reasonable cause which provides for sufficient ambit to the respondents to have not imposed the penalty.
4. Learned counsel for the respondent is unable to refute the factual matrics of the case as submitted by the counsel for the appellant but opposes the appeal on the ground that the appellant should have been conscious about the jurisdiction of Sriganganagar and should have appropriately filed the return at Sriganganagar.
5. Heard counsel for the parties as well as perused the record of the case.
6. This Court finds in the impugned orders, it is indicated that the complete dissolution of the firm had taken place on 31.03.2005. For the Assessment Year 2005-2006 and Financial Year 2004-2005, though the business was carried out in the jurisdiction of Assessing Officer, Sriganganagar, but at the same time with the dissolution of the firm w.e.f 31.03.2005 by the dissolution deed, the belief of the appellant finds strength to be coming within the ambit of the reasonable cause. This Court finds that the return filed by the assessee for the period under consideration with the Assessing Officer at Mumbai could have been taken as a territorial jurisdiction and even if a correction was required in the jurisdiction, at best the corrective measures could have been allowed to be taken, rather than imposing a penalty as the reasonable cause itself gives a sufficient ambit to the (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (5 of 11) [ITA-68/2009] respondent, or the file could have been shifted from Mumbai to Sriganganagar as per the requirement of the authority.
7. Learned counsel for the appellant also relied upon the judgment of this Court in the case of Bajrang Oil Mills V/s Income Tax Officer rendered in DB Income Tax Appeal No. 89/2001 decided on August 2, 2006, whereby the question of law pertaining to the penalty has been dealt with. Paragraphs No. 45 to 61 of the said judgment read as follows:
"45. The question of considering the issue of penalty cannot arise until that stage has arisen.
46. The question of penalty for non- compliance cannot be inquired into without reading the provisions of Sections 271B and 273B as both are integrally enacted. While Section 271B provides for consequence of non-compliance of Section 44AB, Section 273B provides defence or way by which the assessee can seek absolution from liability to penalty that arises under Section 271B.
47. This brings us to second question which we have noticed to above, assuming it for the sake of arguments that sub-section (9) of Section 139 is not attracted when any accounts have not been audited by 31st of October of the relevant assessment year as required under Section 44AB and the accounts are audited thereafter or not audited by the assessee on its own evaluation. It becomes relevant to consider what is the effect of getting accounts audited in terms of Section 44AB belatedly or of raising an issue by the assessee, when he is called upon to remove the defects in return under Section 139(9) for not filing the auditor's report under Section 44AB along with the return, or in consequences of proceedings under Section 271B, that under the law he was not required to get his accounts audited.
48. Apparently, in terms of Section 273B, the AO 'will be required to consider whether not getting the accounts audited by 31st October of the relevant (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (6 of 11) [ITA-68/2009] assessment year was due to any reasonable cause which the assessee may put forward as defence for the failure to comply with the aforesaid provisions. In either case where the assessee raises an issue that his case does not fall within the purview of Section 44AB before penalty could be levied, the AO would be under an obligation to decide such objection raised by the assessee. If the objection is sustained obviously, no occasion would arise either of filing of auditor's report along with the return so as to complete the defective return on such receipt of the notice under Section 139(9) or to suffer penalty under Section 271B. In case where the AO overrules the assessee's objection and holds that the assessee is/was liable to get his accounts audited in terms of Section 44AB the question is always be germane to consider whether such objection raised by assessee as to his obligation under Section 44AB was frivolous or a plausible stand, before arriving at conclusion whether in such case penalty could be levied.
49. Section 273B clearly postulates where the assessee furnishes a reasonable cause for his failure to comply with the provisions which invite penalty under Section 271B along with certain other provisions, with which we are not presently concerned, no penalty is leviable.
50. As a matter of law, it cannot be said that in all cases where ultimately the assessee's objection as to his liability to get his accounts audited under Section 44AB or for any matter non-compliance of any provision, his objections are overruled, his defects or reason for non- compliance cannot be considered to be not bona fide. The fact that ultimately on the analysis of the provisions the successive authorities or the Court may come to the conclusion that the objections raised by the assessee about the requirement to comply with the provisions of the Act are not sustainable, does not make objection raised by the assessee to be not bona fide or groundless. The fact that the assessee raises certain questions (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (7 of 11) [ITA-68/2009] about interpretation of the statute which needs interpretarial (sic-interpretational) exercise, prima facie supports the assessee in that the objection raised by him is bona fide and he seeks the decision on its merit. The fact that ultimately the Court comes to the conclusion against the assessee is no reflection in all cases that objection raised by him were frivolous that answer to objection raised by assessee was self-evident, as appears to have been assumed by the Tribunal.
51. We are, therefore, of the opinion that the Tribunal was not justified in rejecting the assessee's contention that, even if it is ultimately held that the assessee was under an obligation to get his accounts audited under Section 44AB, he was under bona fide belief about the true interpretation of the provisions constitutes reasonable cause for not complying with the provisions of Section 44AB without considering the matter in its totality. In the manner in which the defence of the assessee has been rejected summarily by holding that since the Tribunal found no merit against the assessee, the answer is self-evident about the interpretation of Section 44AB and the default cannot be said to be bona fide.
52. It needs to be reminded that when a matter is brought in appeal before the Court, such appeal lies only in respect of substantial question of law to be framed at the time of admission, when no substantial question of law arises for considering the appeal, it cannot be entertained. For that matter under the earlier provisions also the questions of law only could be referred to this Court for its opinion by way of reference. In this connection, the position is also clear from the decisions of the Supreme Court that any question answer to which is self- evident is not a question of law which is required to be referred to this Court or the question which is self-evident or governed cannot be said to be a substantial question of law which need consideration in an appeal under Section 260A.
53. The fact that the Tribunal has to take up the interpretorial (sic-interpretational) (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (8 of 11) [ITA-68/2009] exercise by referring to the provisions and analyzing the different phraseology used in Section 44AB(a) before reaching its conclusion at least gives a clue that the interpretorial (sic-interpretaticnal) exercise in respect of objection raised by the assessee was not a self-evident exercise but needed a rational and reasoned approach keeping in view the content, context and object of provision itself, in conjunction with other provisions of the Act having a relevant bearing of concerned provision.
54. The fact that this Court while considering the admission of the appeal has found that interpretation of Section 44AB is a substantial question of law requiring consideration by this Court prima facie suggests that the interpretation of Section 44AB was not self-evident and needed an examination of provisions of Section 44AB and different phraseology used with the aid of interpretorial (sic-interpretational) tools in true scope of the provision.
55. If that be so, in our opinion, it cannot be said that the assessee was not bona fide in not getting his accounts audited for the asst. yr. 1994-95 because he has genuine doubts about his liability to do so which he raised when he was called upon to answer the non-compliance. The question about the interpretation of Section 44AB was required to be considered by the Revenue authorities before finding the assessee to be in breach of such provision and which has in fact been considered by the Revenue authorities albeit ultimate answer is found against the assessee. Moreover, we find from the facts, and about which there is no dispute that for the subsequent years and thereafter when the assessee had his total turnover from its business of manufacture was more than the prescribed limit he had been subjecting his accounts to audit and is complying with the provisions of Section 44AB regularly.
56. We are further of the opinion that failure to comply with such procedural provisions with which we are concerned, (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (9 of 11) [ITA-68/2009] under a bona fide belief that the assessee is not required to act in a particular manner under the statute and which does not affect its rights and obligation otherwise arising under the statute; nor by raising of objection, he obtains any advantage to which he is not otherwise entitled to; or where on fulfilment of such requirement, the assessee becomes entitled to certain benefits of statute which requires strict compliance with requirement of law in the manner prescribed breach remains a venial and technical breach for which the penalty is not leviable merely because if it is lawful to do so.
57. In terms of law laid down by the Supreme Court, the penalty could not be levied for every venial and technical breach of procedural laws. In this connection, it may be apposite to draw attention to decision of Supreme Court in Hindustan Steels Ltd. v. State of Orissa where it was laid down that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. In our opinion, the aforesaid ratio in Hindustan Steel Ltd. 's case (supra) fully governs the facts of the present case and, therefore, the assessee was entitled to absolution from the liability to penalty under Section 271B for non-compliance of Section 44AB. Failure to comply with the provisions of Section 44AB can be directly related to a bona fide belief by the assessee that he was not liable to get his accounts audited under Section 44AB looking to the different nature of receipts by him from the different activities.
58. For the same reason, raising a contest by taking a plausible stand as true construction of statute which may ultimately be not found correct in the given circumstances constitutes a reasonable cause due to which the assessee can be said to have failed to (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (10 of 11) [ITA-68/2009] comply with requirement of Section 44AB by not getting his accounts audited for the relevant assessment year. If that were not so, it will be deterrent to a taxpayer even to raise any plausible defence to contest his liabilities and obligations within the framework of statute itself. It will be altruist statement, that where the assessee succeeds in stand taken by him on construction of statute, no case will survive for levy of penalty. It is only where his contention fails on merit, and he is found in breach of a given provisions ultimately, question of consequence befalling for such non-compliance arises. In that view of the matter, the opportunity could have been given to the assessee to remove the defects in return by complying with the requirement of law so that his return became complete. On the return being complete, no penalty could otherwise have been levied, as no breach would survive. In other case where the compliance with Section 44AB becomes redundant, due to completion of assessment, the question as to levy of penalty has to be considered in the light of provisions of statute, in the present case Section 271B r/w Section 273B.
59. It may also be noticed that for the reason that the accounts are not audited where Section 44AB is attracted it does not affect the proper computation of income in terms of provisions of Act of 1961 nor does it affect any claim to any deduction by the assessee under any provisions of the Act. In such event the breach remains a technical breach of the procedural requirement. The conduct of the assessee cannot be said to be lacking in bona fide or of gross negligence when he raised issue about the interpretation of a provision which had used multiple expressions, construction of which cannot be said to be self-evident but needed interpretorial (sic-interpretational) exercise. Because ultimately on construction of statute the stand taken by the assessee is found to be wrong, it does not become a case of 'self-evident' interpretation, impinging on conduct of assessee. Even in the absence of provisions like Section 273B, which aptly (Downloaded on 29/11/2024 at 11:01:14 PM) [2024:RJ-JD:45464-DB] (11 of 11) [ITA-68/2009] governs the present case, the ratio of Supreme Court decision in Hindustan Steels Ltd. (supra), keeping in view the object of provisions of mischief it was intended to suppress.
60. Therefore, levy of penalty in the aforesaid circumstances under Section 271B for non-compliance of Section 44AB regarding asst. yr. 1994-95 cannot be sustained.
61. As a result, the appeal is allowed. The order of the Tribunal as well as the order of the CIT(A) and AO levying penalty against the assessee under section 271(B) are set aside. There shall be no order as to costs and the penalty is quashed. "
8. This Court is of the opinion that under Section 273(B) of the Act, the words "reasonable cause" are to be interpreted in the manner where the bona fides of the assessee has to be checked and once he has filed the returns and audit report with all other required documents, within the permissible time period before one of the authorities then he cannot be said to not having a reasonable cause. The dissolution of firm, proper information of the same and filing of the return at appropriate authority at Mumbai conjointly forms a reasonable cause.
9. Accordingly, the appeal is allowed. The impugned order of the Tribunal dated 27.05.2009 as well as the order of the CIT(A) dated 18.08.2008 and order of AO levying penalty dated 10.03.2008 against the assessee under Section 271(B) are set aside. There shall be no order as to costs and the penalty is quashed.
(YOGENDRA KUMAR PUROHIT),J (DR.PUSHPENDRA SINGH BHATI),J 47-Jatin/-
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